Mobile giant Vodafone is dialling up a new round of cost cuts after sales growth was dragged down by belt-tightening customers in southern Europe.

The company said its underlying service revenue in the region fell 1.6%, compared to a decline of 0.2% in the previous quarter.

The main culprits were Italy and Spain where revenues dipped by 7.7% and 10% respectively. But Vodafone’s British arm, which has 19 million customers, also slipped into reverse, reporting a 0.8% fall.

Chief executive Vittorio Colao flagged in May that the company may struggle to grow this year, but sweetened the outlook with a bumper increase in the dividend to make it the FTSE’s biggest payer.

Europe’s woes were offset in the quarter by 6.1% growth in Vodafone’s other operating division that comprises Africa, the Middle East and Asia Pacific, making a 0.6% increase in service revenue to £10 billion for the group overall. The trading figures underline the scale of the challenge for Colao, who, after four years at the helm is trying boost the group’s income from corporate customers and data. Next week, shareholders can vote on his bumper pay award at Vodafone’s annual meeting. The Italian was handed a £14 million package last year after a long-term share award vested — partly because his company has outperformed rivals with greater exposure to flagging eurozone economies.

“Despite the difficult market conditions, particularly in southern Europe, we continue to make progress in the key areas of data, enterprise and emerging markets, while maintaining tight control of our cost base,” Colao said.

“Vodafone confirmed full-year guidance, which we think the company are still well placed to achieve even with a slight softening of results,” said Robin Bienenstock, a telecoms analyst at Bernstein Research.